Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Support MFO
Donate through PayPal
What is the consensus on FMI Large Cap (FMIHX) as a core holding?
It is a very good fund and certainly can be a core holding. In fact, I owned it for several years. I liquidated late last year to move into LCG, not because of performance, risk or any other reason, just diversification. I'm a big holder of FAIRX, so I felt I did not need FMIHX any longer.
Its risk/reward, tax cost ratio and most other metrics are at the top of its class. My only concern is that its AUM have increased quite a bit over the recent couple of years. That's what happens when people discover good funds, I guess!
I do not believe you can compare FAIRX and FMIHX is that way. Both are making concentrated bets in that managers are deciding to invest only in a small number of positions they are comfortable with. With both, you can make the argument you are taking more "manager risk" rather than "market risk".
As I used to opine on fundalarm also, I have long stopped doing the traditional asset allocation thing such as so much in large cap, so much in small cap, so much international, so much in bonds etc. As 2008 and 2009 have amply showed, the market is fickle and one cannot ever plan adequately for "market risk". The only reason I lost 20% instead of 55% in the 2008-2009 period was because I decided to assume "manager risk" instead of "market risk" (and another was I did not buy and hold those funds with which I was assuming "market risk").
I don't think FAIRX can be considered a core fund. FMIHX can, but only because FMI managers seem to have more traditional ways of evaluating their stocks and they are focused on the Large Cap segment as the name suggests. FAIRX investment in large cap stocks today is probably and indicator of its girth preventing it from taking meaningful positions in lower cap stocks.
If you are comfortable taking a position in the concentrated fund, my 2 cents is FMIHX is a better "core" holding than FAIRX. Whatever reasons you have for owning FAIRX, you can continue holding it. But then why you are worried about having a core holding I don't know.
I do not own FAIRX. I'm looking at FAAFX instead, but the $10K minimum is a deterrent for me and I may consider owning it on a market correction. I would not consider either FAIRX or FAAFX as a core position of my portfolio. I actually own FMIHX and FMIRX in small quantities. I consider both of them together as a single position since I think they complement each other very well. Again, I don't consider that a "core" position because I don't believe in that - but it might be something for you to ponder.
YACKX is another focused fund. Again, IMHO not a core position, and much worse to treat it as one. FMIHX is a better choice.
The FMI family of funds is excellent. I own their small cap fund, FMI Focus, FMIOX. I think their large cap, FMIHX, is at least in the top 5 of large cap funds to own as a core holding. Great long term record, great risk reward rating - seems to do well in down markets (such as 2008). Don't let the focused holdings portfolio scare you. I think in the large cap area, limited holdings in the hands of a good manager is the only way to beat the index.
That said, I own YAFFX, Yacktman Focus and PRBLX, Parnassus Equity Income in the large cap sector - not FMI Large Cap. Reason, for me, FMIHX has a transfer fee with each purchase. Wasn't a good fit because I was building my large cap position slowly. Otherwise, it was at the top of my list.
VintageFreak, I agree with most of what you say, but I'm not sure what a "concentrated" portfolio has to do with a "core" holding. Granted, conventional wisdom says that fewer holdings implies greater volatility, BUT that really is not true. There are many funds that violate that "rule".
Regardless, I agree that FMIHX is a more "conservative" fund, no doubt. But I am more comfortable with the extra volatility of FAIRX. And to answer the question, "is FMIHX a core holding", I still say YES!!! And its "numbers" bear this out.
Anyway, good investing in whatever decision you make!!!!!!
I think that FMIHX is a nice fund and I would say it is a core holding. Over 5 years M* lists it as low risk with high return.
VintageFreak makes an interesting point though. And it depends on how you manage your portfolio. Usually core means that it is a long term holding that has a broad mandate (i.e. not a niche or sector position). You could make a case for both FAIRX and FMIHX as core holdings. FMIHX may have more conventional holdings for a large cap fund though and FAIRX makes some more unconventional value plays. So, I wouldn't compare them directly.
For the record, I own FMIMX FMI Common Stock and FAIRX.
I know you have asked specifically about FMIHX, but I like to use balanced funds as core holdings instead of pure equity funds. For me, a core holding should mirror your risk tolerance, which means you are less likely to sell it at the wrong time. My core holdings are OAKBX (Oakmark Equity and Income) and FPA Cresccent (FPACX) in roughly equal amounts. I would have preferred a more global balanced fund, but have not found one that I am comfortable with.
Another possibility is to use something like PRPFX (Permanent Portfolio) as a core holding.
My plan, going forward, is to mix new fund profiles each month with complete rewrites for the best of the FundAlarm archive funds. FMI Large is on that "to do" list.
I use to own this fund and its one of my favorites. I recently transfered it to OAKBX (after a profit) because I wanted to consolidate my Roth IRA's and immediatly realized that was a mistake. I guess that's sellers remorse. I can't say it was a mistake really...it was more of a lateral move, but I'm more upset because I did it in the first place. There was no reason I couldn't hold onto both. I've decided I'm going to start DCAing back into it. I just like everything about the fund too much not to invest in it. I like the way the managers invest and communicate to to the investors in the shareholder reports etc...
We do not use FMI Large Cap. It is certainly an ok option, and the concentrated portfolio is a plus. You might consider using a fund with smaller asset size. That would give the managers much more flexibility in the short term, until the fund gains popularity. We have been adding DGHM All Cap Value (DGAIX) to a number of our client accounts. Great history as a separately managed fund, consistent philosophy, reasonable fees of 0.99%. The retail shares are a higher 1.27%, but still reasonable for a very small, newer fund. And the attraction of being all-cap rather than held to a specific size of company is a real plus.
There are other funds like this. Osterweis (OSTFX) is very similar to DGHM in terms of owning all sizes of companies. They can be a bit more growth-oriented than DGHM, but I would not get hung up about growth/value when picking managers and funds.
My guess is that FMI Large Cap is an good option. Just don't tie yourself to large, mid, small, value, growth. What I would spend time on is finding the best managers who will give you an overall diversified portfolio.
There is nothing wrong in using a concentrated fund as a core holding. My definition of a core holding is that it is diversified enough to be representative of the market at large. Some say 20 stocks is enough diversification. I call it "manager risk". That's all.
The question was not "what is a good core fund", it was suggesting using FAIRX in lieu of FMIHX as a core fund. I'm sure you'll agree any answer is only as good as the question asked.
I will be interested in your take on their new International Fund. I think FMIHX dabbled in International, but am not sure. Not sure if they have enough International "expertise", if you know what I'm saying. Oakmark Small Cap anyone?
Both are making concentrated bets in that managers are deciding to invest only in a small number of positions they are comfortable with. With both, you can make the argument you are taking more "manager risk" rather than "market risk".
There is still significant market risk left. You are not eliminating market risk as these funds still have very high market risk. You might want to think that you are replacing a portion of the market risk with manager risk which is lower but sometimes manager risk is actually bigger but we will never now until next time. It happens over and over again and investors move from one fund to another after disappointment.
Many actively managed funds in 2008, 2009 decline actually did worse than the index funds. Fairholme during the decline did not fair well, it just recovered more quickly by taking big bets. Many others did not do that well. Will Berkowitz right again next time. I do not know. His investors surely do hope so!
Comments
Its risk/reward, tax cost ratio and most other metrics are at the top of its class. My only concern is that its AUM have increased quite a bit over the recent couple of years. That's what happens when people discover good funds, I guess!
As I used to opine on fundalarm also, I have long stopped doing the traditional asset allocation thing such as so much in large cap, so much in small cap, so much international, so much in bonds etc. As 2008 and 2009 have amply showed, the market is fickle and one cannot ever plan adequately for "market risk". The only reason I lost 20% instead of 55% in the 2008-2009 period was because I decided to assume "manager risk" instead of "market risk" (and another was I did not buy and hold those funds with which I was assuming "market risk").
I don't think FAIRX can be considered a core fund. FMIHX can, but only because FMI managers seem to have more traditional ways of evaluating their stocks and they are focused on the Large Cap segment as the name suggests. FAIRX investment in large cap stocks today is probably and indicator of its girth preventing it from taking meaningful positions in lower cap stocks.
If you are comfortable taking a position in the concentrated fund, my 2 cents is FMIHX is a better "core" holding than FAIRX. Whatever reasons you have for owning FAIRX, you can continue holding it. But then why you are worried about having a core holding I don't know.
I do not own FAIRX. I'm looking at FAAFX instead, but the $10K minimum is a deterrent for me and I may consider owning it on a market correction. I would not consider either FAIRX or FAAFX as a core position of my portfolio. I actually own FMIHX and FMIRX in small quantities. I consider both of them together as a single position since I think they complement each other very well. Again, I don't consider that a "core" position because I don't believe in that - but it might be something for you to ponder.
YACKX is another focused fund. Again, IMHO not a core position, and much worse to treat it as one. FMIHX is a better choice.
Best.
That said, I own YAFFX, Yacktman Focus and PRBLX, Parnassus Equity Income in the large cap sector - not FMI Large Cap. Reason, for me, FMIHX has a transfer fee with each purchase. Wasn't a good fit because I was building my large cap position slowly. Otherwise, it was at the top of my list.
Good luck with your decision.
Regardless, I agree that FMIHX is a more "conservative" fund, no doubt. But I am more comfortable with the extra volatility of FAIRX. And to answer the question, "is FMIHX a core holding", I still say YES!!! And its "numbers" bear this out.
Anyway, good investing in whatever decision you make!!!!!!
VintageFreak makes an interesting point though. And it depends on how you manage your portfolio. Usually core means that it is a long term holding that has a broad mandate (i.e. not a niche or sector position). You could make a case for both FAIRX and FMIHX as core holdings. FMIHX may have more conventional holdings for a large cap fund though and FAIRX makes some more unconventional value plays. So, I wouldn't compare them directly.
For the record, I own FMIMX FMI Common Stock and FAIRX.
Another possibility is to use something like PRPFX (Permanent Portfolio) as a core holding.
My plan, going forward, is to mix new fund profiles each month with complete rewrites for the best of the FundAlarm archive funds. FMI Large is on that "to do" list.
As ever,
David
There are other funds like this. Osterweis (OSTFX) is very similar to DGHM in terms of owning all sizes of companies. They can be a bit more growth-oriented than DGHM, but I would not get hung up about growth/value when picking managers and funds.
My guess is that FMI Large Cap is an good option. Just don't tie yourself to large, mid, small, value, growth. What I would spend time on is finding the best managers who will give you an overall diversified portfolio.
The question was not "what is a good core fund", it was suggesting using FAIRX in lieu of FMIHX as a core fund. I'm sure you'll agree any answer is only as good as the question asked.
Many actively managed funds in 2008, 2009 decline actually did worse than the index funds. Fairholme during the decline did not fair well, it just recovered more quickly by taking big bets. Many others did not do that well. Will Berkowitz right again next time. I do not know. His investors surely do hope so!